The US Treasury is barely breaking even on its investment in beleaguered insurance giant American International Group Inc (AIG), according to an early litmus test of market interest in the firm’s stock.
The Treasury sold 200 million shares of AIG at US$29 per share, a slight discount from their closing price and not far above the US$28.73 average price the Treasury will need to recoup its full investment in the company.
The US$8.7 billion total sale, which included 100 million shares sold by AIG itself, was also far smaller than the US$10 billion-US$20 billion banking sources had been throwing around, and hinted at a persistent lack of investor interest in the firm despite its apparent strides.
The Treasury acquired the shares under extreme duress, as the potential failure of the insurance giant threatened to exacerbate an already severe financial crisis in late 2008.
Tuesday’s sale represented the first step in removing generous support for the insurance behemoth, which totaled over US$180 billion in several installments.
The Treasury will remain by far the majority shareholder of AIG, but its holdings now comprise 77 percent of the total, down from 92 percent before the sale.
“We’re hopeful that we can recover all the investment that we made,” Tim Massad, the Treasury’s acting secretary for financial stability, said in a conference call with reporters.
However, he added that the extent of losses — or profits — would not be known until the Treasury fully exits its stake.
Massad said there is no specific timetable for the sale of remaining shares. He added that, following an agreed “lock-up” period of 120 days, the Treasury would continue to reduce its holdings “in an orderly fashion.”
“We’re going to sell in a way to maximize value to the taxpayer,” Massad said.
Treasury raised US$5.8 billion on Tuesday. All told, it needs to raise US$47.5 billion to break even on the equity portion of its investment in AIG.
AIG’s share sale is important for the US government, which is trying to sell out of multiple investments it made in companies during the financial crisis.
The bailouts were highly unpopular, especially after it became known that top managers in the very same AIG unit that drove the company into a rut had continued to pay themselves handsome bonuses even while receiving taxpayers’ help.
The AIG share sale is also a key moment for chief executive officer Robert Benmosche. Benmosche, who became AIG’s fifth CEO in less than five years in August 2009, halted a plan to break the company up in a fire sale of its parts.
He instead embarked on a revival centered around two core businesses: US life insurer SunAmerica and global property insurer Chartis. Other businesses were sold, taken public or left to operate with a view toward an eventual sale.
AIG was literally minutes from bankruptcy when it was rescued in September 2008. The various iterations of the rescue package ended up being worth US$182 billion, dwarfing various other bailouts around the world during the financial crisis.
The question now is how quickly the US government exits its investment and whether it breaks even.
Benmosche has said he expects the government to be out of its AIG position by the middle of next year. Fitch Ratings said recently its own models for the company assume the government is out by the end of next year.